Direct Deposit: No Fuss, No Muss, No Paper Shuffling
By: Source: AARP.org Date Posted: 2005-08-16 12:20:53
By the National Endowment for Financial Education
Each month, the Snyder's Social Security payments end up in their checking account without the Phoenix-area couple ever filling out deposit slips or driving to the bank.
Like 81 percent of people receiving Social Security benefits and uncounted numbers of pensioners, the Snyders' money is transferred straight into their bank by an electronic process called direct deposit.
"The convenience is wonderful," says Mr. Snyder, an AARP member. "We never have to make a trip to the bank to make a deposit."
What is Direct Deposit?
Using direct deposit, a company or organization transfers money electronically straight into the account of the person entitled to the payment. It is done through the Automated Clearing House (ACH), an electronic system operated by the Federal Reserve and the Electronic Payments Network. Payroll is the most popular application of direct deposit, but many other kinds of payments, including Social Security, can be made via direct deposit.
Safe, Quick and Convenient
Many people prefer direct deposit because it is safe, fast, confidential, economical, and convenient. "With direct deposit, if you're away traveling, visiting the grandkids, or if you're sick and can't leave the house, you don't have to make a trip to the bank to have money available," says Mike Herd, a staff person for the National Automated Clearing House Association.
Because direct deposit is handled electronically, payments don't get lost in the mail or stolen from mailboxes. The money is there on the payment day, and you don't have to wait for a check to clear. But consumers must still remain alert; the system is not fool-proof and there are occasional problems with deposits or digital errors.
Direct deposit works with much more than Social Security and payroll checks. You often can set up pensions, annuities, bonuses, commissions, salaries, tax refunds, dividends, and expense reimbursements to appear automatically in your checking or savings accounts. You can also use direct deposit to set up a savings plan to automatically transfer funds from your pay check to a savings account.
The federal government likes the electronic system too. The government saves lots of money with direct deposit. In fact, it costs 62 cents more to mail a federal benefit payment check than to issue an electronic payment.
Direct Deposit–You Choose
Not everyone prefers direct deposit, however. You do not have to get direct deposit of your Social Security check—it's your choice. Some people prefer the social interaction of taking checks to the bank and handing them to tellers. Others like the assurance of receiving a paper check.
And even if you sign up for direct deposit, you can change your mind if you don't like it. You can sign forms to reverse your decision. Just remember it will take some days to process your paperwork. So don't expect a paper check to show up if you make the change just a couple of days before an electronic deposit is scheduled.
Signing up for Direct Deposit
To get your Social Security check by direct deposit, go to your local Social Security office, bank or credit union. You'll fill out an enrollment form that authorizes direct deposit. If you want the money to go into your checking account, you'll attach a voided check, which the system will use to get your checking account number and your financial institution's "routing" number (think of it as a "street address" for directing ACH payments). You can also find the form at www.fms.treas.gov/eft/gettingstarted.html, or you can call 1-800-333-1795 (English) or 1-800-333-1792 (Spanish).
If you're still in the workforce, see your payroll office about direct deposit. Most big employers offer direct deposit. If you work for a smaller company that isn't offering direct deposit at present, suggest your payroll experts look into it. At www.directdeposit.org, click "consumers" and you'll find a letter you can print and send to your employer, summarizing the advantages of direct deposit.
This column is meant to provide general financial information; it is not meant to substitute for, or to supersede, professional or legal advice.
Note: The content areas in this material are believed to be current as of this printing, but, over time, legislative and regulatory changes, as well as new developments, may date this material.
©2005 National Endowment for Financial Education. All rights reserved.
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